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Infosys Limited (NYSE:INFY)
Q3 2020 Earnings Call
Jan 10, 2020, 7:45 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day and welcome to the Infosys Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr Sandeep Mahindroo. Thank you, and over to you, sir.

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Thanks very much. Hello everyone and welcome to Infosys earnings call to discuss Q3 FY '20 earnings release. Happy new year to everyone on the call. This is Sandeep from the Investor Relations team in Bangalore. Joining us today on the call is Chairman, Mr. Nandan Nilekani; CEO and MD, Mr. Salil Parekh; COO, Mr. Pravin Rao; CFO, Mr. Nilanjan Roy, along with other members of the senior management team.

This call will be for 90 minutes and will be divided into two parts. For the first 30 minutes, our Chairman, Mr. Nandan Nilekani will talk about and take questions on the Whistleblower Matters and the recently concluded investigation. That will be followed by the regular earnings call format in the next 60 minutes, with opening comments by Salil, Pravin and Nilanjan, followed by Q&A. Please note that anything which we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risks that the company faces. A full statement explanation of these risks is available in our filings with the SEC, which can be found on www.sec.gov.

I'd now like to pass it on to Nandan.

Nandan Nilekani -- Chairman of the Board

Thank you, Sandeep, and I'd like to welcome all of you to this call. I'm pleased to say that the Infosys Audit Committee did not find any evidence of financial impropriety or executive misconduct and there is absolutely no change in previously related financial statements. So everything has come out clean. We have had a very thorough investigation done, which was done by independent legal counsel, Shardul Amarchand Mangaldas along with PricewaterhouseCoopers. We also had Ernst and Young as our internal auditors, and as you know our certifying auditors are Deloitte. So this has gone through the scrutiny of all these various groups, and there is absolutely no issues of restatement or anything of that type.

The audit committee has taken this very seriously, and they have done a very thorough investigation. Just to give you a sense of the scale of the investigation, 128 interviews with 77 people, 46 custodians for data were nominated, and their review was over 210,000 documents with over 8 terabytes of data, which were processed. This investigation began on -- when we appointed Shardul Amarchand on October 21st and concluded today, and so it's been a very intense several weeks, which have occupied investigators as well as our people, our Board members, our management team and also our General Counsel, Inderpreet.

Now the investigation review was done for the period from Jan 1st, 2018 to September 30, 2019 and the investigative team was given complete unrestricted access to every person and every piece of information that was there, and it ensured that the company, its Director and its employees cooperated fully and extensively in this investigation.

Now as -- so apart from the fact that we had a very thorough investigation, we have also made sure that all the key findings of the investigation are put out in the public domain. So this is not some one statement thing, this is a detailed thing, we have taken each of the allegations, be it on the business side or be it about the CEO, and on a point-by-point basis the allegations have been answered and we have given the answers. And as you will find it on -- I would say almost all of it, it's very clear that the allegations are unsubstantiated.

There are a couple regarding one large deal, where there was a question, whether the method of auditing -- method of whether to use a percentage of completion method for costs or to use the Stateline method for revenue recognition and for that. Now the company as a policy, has been using both the SLM method and the POC method and a very large number of projects are in SLM method. However, the company from time-to-time, based upon the nature of the contract, has chosen to operate on the POC method, and POC method was selected for this. Both these methods are in line with both accounting standards, as well as the policy of the company. And therefore, we are quite comfortable that the company's actions on this have been correct.

The other matter which is also related to the same contract, is some service credit, and there has been a point made by the investigators about that and here again, we have reviewed the investigation, and this is about whether something could be -- has to be reversed or non-accounted or whatever, and it is very clear that it is neither qualitatively nor quantitatively material to the reported revenues of operating guidance, because the cumulative effect of this is in the range of 0.02% to 0.03%. It's a very, very minuscule amount, just a couple of million dollars compared to the multi-billion dollar revenue that it has. And therefore this is not relevant and would have had no impact on any of our revenue, margin, guidance, all this stuff.

So these are the only two things which we have there and we have -- the audit committee has taken the view on both. So overall, we have -- everything else is unsubstantiated. There were also a number of allegations made about the CEO some of which were bordering on the comment [Phonetic]; but anyway we have taken them one by one and shown clearly that there is no -- all of them have been addressed, and we are very happy that the CEO has come out of this investigation with flying colors and I'm very grateful to Salil and his team have had to really face a lot of questions, and they are thorough professionals, whether it's Salil, whether its CFO Nilanjan Roy, or all the outstanding members of our Finance Department, Jayesh, Deepak Bala, Sachin Zute, Amrita Srikanth, Sandeep Mahindroo and others. All of them are outstanding professionals, and they've had to deal with both closing the books, as well as closing this investigation and they have done that brilliantly with high integrity, and therefore, I think we are very-very pleased the Board, the Chair, the audit committee, everybody is pleased, that our management team has come out so well. And the Board continues to have the fullest confidence in Salil and his management team, and we believe that this episode, this distraction, has actually made us stronger, more committed to our goals, brought us altogether, and we are now very-very confident that having put this distraction to rest, we can get on with our business of running a great company.

So I will stop at this point, and I'll be happy to take questions. And I will take questions and after I finish my session, I'll hand over to Sandeep, after which we'll get down to the real purpose of this call, which is to discuss the business performance of Infosys.

Questions and Answers:

Operator

Thank you very much sir. [Operator Instructions]. The first question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Moshe Katri -- Wedbush Securities -- Analyst

Hey thanks. Congratulations on concluding this internal investigation. Two things here; will there be any changes to the future use of POC accounting down the road that's number one. And number two, any color on the ongoing SEC investigation, In terms of type of timeline and what to expect? Thanks a lot.

Nandan Nilekani -- Chairman of the Board

Yeah, thanks Moshe it is good to hear your voice. First of all, the company's policy has been to have both these methods SLM and POC. It is true that the bulk of the contracts are done with SLM. But from time-to-time the -- given the sort of unique nature of some contracts, we do use the POC method. So both are part of the policies, and I'm not an expert and maybe I'm getting into dangerous waters. But I don't think there any -- there's going to be any change in this policy. On the second point...

Moshe Katri -- Wedbush Securities -- Analyst

And then...

Nandan Nilekani -- Chairman of the Board

You're absolutely right, we are engaging with the SEC. The SEC -- we are giving them full cooperation over the last several weeks. We have been giving them an update from time to time and we will continue to engage with the SEC and take this to its logical conclusion. In terms of the timeframe, as you know, I -- we cannot say what the timeframe will be, that the SEC will see. But we are there ready and waiting and able to engage on any issue, and give them the fullest cooperation.

Moshe Katri -- Wedbush Securities -- Analyst

Thanks. Again, congrats.

Nandan Nilekani -- Chairman of the Board

Thanks Moshe.

Operator

The next question is from the line of Rod Bourgeois from DeepDive Equity Research. Please go ahead.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Yes. Will there be any changes in your employee base as a result of this investigation? Or are all the employees that were involved, remaining with the company at this point?

Nandan Nilekani -- Chairman of the Board

Now, first of all that is an assumption which I would like to correct. There is no evidence that this whistleblower was done by employees. Saying that is employees, does not mean it is by employees. Please understand that. And it is entirely equally likely that this was done from outside. And it has nothing to do with employees because as I said, we have complete confidence and faith in the integrity of our finance team and leadership. So there is absolutely no change. We have a very strong team. They continue to be there and we will continue to build the company, as we always were. As you know, under the whistleblower protection policy, we are not supposed to go around looking for who the whistleblower is, and as I also said, this could be inside or outside. We think our -- we would tend toward outside, and therefore I would not get worried about this issue at all, and everybody continues and does their job.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

That's a very helpful clarification. One quick follow-up, I mean as we've moved into the digital era, the nature of deal structures have modified to some extent. Are you making any changes in your approach to structuring deals, or your process of approving deals, and did this investigation shed any light on modifications to any processes that might be useful going forward?

Nandan Nilekani -- Chairman of the Board

No, I think, in fact, if anything, this very detailed investigation, which examined 210,000 pieces of data, and which had 8 terabytes and all that, has in fact brought out the robustness and detail approach that we have, the way we approach revenue recognition, the way we approach contracts. Of course, we are always willing to learn and improve, and once we get all the details from, as you know, we have three auditors and one law firm here. So we need to really assemble from all that. But once we get all the details, if there is a scope for process improvement, we will do that. That is the nature of how we do things. We keep improving processes. It is nothing specific, and in fact, after having this extensive investigation, the fact it boiled down to some couple of things, itself shows the strength of the company.

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Great, Thank you.

Operator

Thank you. The next question is from the line of Bryan Bergin from Cowen. Please go ahead.

Bryan Bergin -- Cowen & Company -- Analyst

Hi, thank you. Just one from me on this section, any material costs associated with the actual review process that are worth identifying here? So any financial impact from the actual process that you went through? Just to give us a sense of any related margin drag?

Nandan Nilekani -- Chairman of the Board

No, I'm sorry, financial impact from what?

Bryan Bergin -- Cowen & Company -- Analyst

As far as the process, the costs that the company had...

Nandan Nilekani -- Chairman of the Board

Of the investigation itself?

Bryan Bergin -- Cowen & Company -- Analyst

Yes.

Nandan Nilekani -- Chairman of the Board

I think the cost has already been factored in our Q3.

Bryan Bergin -- Cowen & Company -- Analyst

Okay. I just was curious if it was a material number that impacted the operating performance?

Nandan Nilekani -- Chairman of the Board

No, not at all. I think, while it is expensive to hire lawyers, i think on a $12 billion revenue, we can manage.

Operator

Bryan Bergin, are you done with your question?

Bryan Bergin -- Cowen & Company -- Analyst

Yes. Thank you.

Operator

Thank you. The next question is from the line of Sudheer Guntupalli from Motilal Oswal. Please go ahead.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Yeah, good evening, sir. Thanks for giving me this opportunity. Going forward, is there a mechanism that we identify to ensure that genuine stakeholders of the company, be it shareholders or employees or clients or even the management team, are insulated from any more of such potentially frivolous complaints?

Nandan Nilekani -- Chairman of the Board

Boss, now if somebody files a whistleblower complaint, and if that person chooses to also release it to the media before the company has an opportunity to investigate and come to a conclusion, there is nothing that the company can do. We are committed to higher standards of governance. We will deal with whistleblowers, as they come, and we are confident that we will -- we run business in a clean and ethical manner and we'll continue to do that.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Sure sir. And one more question, when we talk to the clients, are there any references to this incident or any clients have any -- expressed any concerns related to this?

Nandan Nilekani -- Chairman of the Board

When this incident happened, we did reach out to clients. We explained to them that we were doing an investigation and our clients, many of whom we have been working for more than two decades, were very understanding. And now that the reports have come out and there is a clean chit for the company and for its leadership, we will make sure that all our customers are aware of this development, so that if they have any niggling concerns, they will be put to rest.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Sure sir. Thanks. That's it from my side.

Operator

Thank you the next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal -- Edelweiss Capital -- Analyst

Hi, thanks for giving me the opportunity to ask question and congratulation on giving the findings of audit committee brief everyone. So Nandan, I have just one question, and I know that you have already answered it in a different way, but I would like to know the immense pain, which you know everyone has to go through in this kind of frivolous and intentional motivated complaints are made and things are made, and there is a immense, suffering for all the stakeholders obviously company suffers most, they have to give so much of time to this investigation and do their job. And I understand that you follow this best policies on whistleblower, so you will continue to do that. But the challenge is that, if this things keeps on coming, it definitely impacts indirectly the CEO, the CFO, everyone who is on the job. So you know, it impacts our business in a very substantial way. So is there any way that -- at least a very limited ones actually can do this kind of disruption. Most of them, there is a process which can filter out whether there is any sanctity to that or anything which could be done to at least stop mala fide intentions of these kind of complaints?

Nandan Nilekani -- Chairman of the Board

Well, you are absolutely right in saying that, when you have such as complaint, it creates a distraction in many ways. Number one, the sheer amount of time; remember I talk about the number of interviews and all that. So the sheer amount of time that our leadership team and our finance team has to spend on this, is a distraction from their work. Very often they have to stay in one place to meet -- do the interviews, it means they can't travel to meet customers. So that's the second issue. Third, absolutely; when you take upstanding professionals and make wild allegations about them, it can be -- it can affect the morale, and that's certainly something which we have to be cautious about. Some of our customers may have questions and so on and so forth.

So I agree with you on that. But I think it's also the responsibility of you guys and the media, because when there is a completely anonymous complaint, which which is deliberately leaked before the company has been given the opportunity to process and have an investigation. Then you guys also should think, no? Part of the problem here is that, the reaction of the media and investors is also on very spacious stuff. I think everybody has a role to play to make sure that this kind of weaponizing does not happen.

Sandip Agarwal -- Edelweiss Capital -- Analyst

So Nandan, if I can add one point only just, we have same view, what do you have from day one, Like we have always said that you know nothing wrong can happen in Infosys, at least on corporate governance and those kind of things. We always said that the only challenge is that you know, when this kind of thing happens also, there is a lot of pain from the perspective that the long-term value of the stock? Means, I understand that these things as, you don't take short-term view and all that. But even in the long-term view. If you take the stock, there many parameters, which are there when anyone evaluates the stock. Those get disturbed very substantially and it impacts the value of the company. So there is reason I'm asking that -- there has to be some options, also you can at least think of some process by which these things could be from the company side also could be limited or restricted to some extent, that you gave some kind of clarification immediately. I'm not saying you should do this, but I'm just saying, if anything...

Nandan Nilekani -- Chairman of the Board

Boss, boss. Please understand if -- look what are the incentives here? Now suppose suppose we have a policy -- I am just saying hypothetical, this is not -- hypothetically, suppose we have a policy that every time we get a whistleblower, we issue a press release or something, there'll be no end to it. We will have 10 whistleblowers a day. And and no matter how wild the allegations and no matter how unsubstantiated they are, we will have to be issuing stock exchange notices. I mean. I don't think any company in the world can run like that. So you have to accept that when something is anonymous, unsubstantiated and not backed by evidence, the least you can do, is give the management and the Board the space to investigate and get back. Now if you don't have that then what can I say, I mean what do you want to do?

Sandip Agarwal -- Edelweiss Capital -- Analyst

Absolutely. Thank you.

Nandan Nilekani -- Chairman of the Board

I agree with you. No, I agree with you that obviously if something like this is there, then it creates an overhang and all, I appreciate that. But our goal is to minimize this and hopefully reach a point when we will not have any more of these things.

Sandip Agarwal -- Edelweiss Capital -- Analyst

Yeah, absolutely this detailed report, which you have published. I think in a long term, now, people will not take this kind of anonymous complaint at all seriously. That is what I hope.

Nandan Nilekani -- Chairman of the Board

I mean, your hope is -- we appreciate your hope, and we are with you man.

Sandip Agarwal -- Edelweiss Capital -- Analyst

Thank you, Nandan.

Operator

Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.

James Friedman -- Susquehanna Financial group -- Analyst

Most of my questions have been answered. I go back into the operating, but I do want to ask Nandan from your prepared remarks, do you have any sense of what the motivation in the whistleblower might have been? Was it nefarious in nature, and are there any repercussions for them?

Nandan Nilekani -- Chairman of the Board

You know, we have to be very-very careful on these things; because you know, especially under the US law, the whistleblower is well-protected and rightly so, because you need strong whistleblower protection to ensure that genuine malpractices and fraud come out. And I appreciate that. But what happens often is that, because of the strong protections, we are also not in a position to speculate on who could it be and so on. So we are also bound by what we can do. But we will -- I think once this whole thing is settled down, we will look at the law again and see what is possible. But I think at this point, we are not going to speculate on who it could be.

James Friedman -- Susquehanna Financial group -- Analyst

Okay, thank you.

Operator

Thank you. The next question is from the line of Sandeep Shah from CGS CIMB. Please go ahead.

Sandeep Shah -- CGS-CIMB -- Analyst

Yeah, just one question. As a method of investigation, whether the current investigators who carried out the report whether, they had a right to ask for those evidence, like video and the email, which has been claimed by the whistleblower letter has been just given to the regulator from the regulator, or they are not being allowed to do that, as per the regulatory hurdles?

Nandan Nilekani -- Chairman of the Board

No, look -- see, please understand that in this whole episode, the claim on evidence is only in the letter sent to the whistleblower protection office of the SEC, and that letter claims that there is a pen drive, one with email's and one with some phone calls. Now we have not received that, we said that also in one of the statements we issued late October, early November, and as you know, the regulator also says -- if you ask the regulator about something, they say, we can neither confirm nor deny the existence of this. So you don't get any visibility from the regulator. We don't have the information, nor has the whistleblower thought it fit to provide this information to the investigators. So as far we are concerned, we don't know if such evidence exists and we'll be happy to see it and we look forward to the whistleblower sending us this information.

Sandeep Shah -- CGS-CIMB -- Analyst

Okay, thank you. All the best.

Operator

Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman -- BMO Capital Markets -- Analyst

For this section, my questions have been answered. Thank you.

Operator

Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi, most of the questions have been answered. But I just had kind of two quick ones. It sounded in your earlier remarks, like you thought it might -- the whistleblower might have come from outside the company. I'm just wondering why you thought that? And then just as importantly, if the person or entity continues, how do you expect to handle that and/or copycats? Thanks.

Nandan Nilekani -- Chairman of the Board

Well, first of all, I mean, as I said, beyond the point we can't really investigate where it's coming from. We are seeing that our finance leadership team is innocent. They are of the highest integrity, they have not done this. That much I can say categorically. Now I mean -- and therefore we will tend to believe that for us, there is an external hand in this. But again because of the fact that we are constrained from actually getting into it, I can't comment more than that.

Now, if there are -- somebody wants to do some copycat things, we'll have to deal with it. I think we are fully prepared, we have nothing to hide, we run our company with high ethical standards. We run our robust balance sheet. Here in this whole situation. I mean if you just think about it, three month of investigation, 210,000 emails, whatever X terabytes, petabytes of data, and all that we have is something which [Indecipherable] $2 million item. So I mean, so this clearly shows that this company has very-very robust processes and checks and balances. So we are completely confident about the way we run our business. And I'm sure that once that confidence is there, then -- even if somebody tries something, then it won't have any credibility.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

No, I guess my concern was like, if there was a short seller or somebody else who was trying to create volatility in the stock. If they kept doing it. What -- if you have any plans in place to handle future accusations? But that's why I asked about the copycats?

Nandan Nilekani -- Chairman of the Board

Yeah, I mean...

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Nandan Nilekani -- Chairman of the Board

I can't help you there.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of Shashi Bhusan from Axis Capital. Please go ahead.

Shashi Bhusan -- Axis Capital -- Analyst

Yeah, thanks for taking my questions. And congratulation on favorable verdict from the investigation that helped resolving most of the queries raised by whistleblower sir. Do you think this would be sufficient to take care of most of SEC queries?

Nandan Nilekani -- Chairman of the Board

I'm sorry?

Shashi Bhusan -- Axis Capital -- Analyst

Do you think the the internal audit that we have run, would be sufficient to take care of most of the SEC queries that would come?

Nandan Nilekani -- Chairman of the Board

Boss, I can't comment on how the SEC will view this. All I can say is that, we have done a very thorough and rigorous investigation. The investigating legal firm and investigating auditing firm has been given complete access to every email, every conversation whatever it is and they have been encouraged to interview. In fact, many people have had multiple interviews, so that they get to the bottom of all this. And over the last several weeks, our legal counsel has been updating SEC about the developments. So I think now it's clearly for that conversation to happen. I'm really, sorry, I cannot, I cannot read their mind. So I can't say what is it, but we are comfortable that, we have a very thorough extensive and comprehensive investigation, and we hope that will give us a good stead when we engage with them.

Shashi Bhusan -- Axis Capital -- Analyst

So sir, one on the business side, our aggressive sales pitch has helped regain some market share. But there were deals like asset and employee takeover, where Infosys was not trading earlier, and that has been a big contributor of growth in FY '19 and '20. So do we see any change in our stance for the same, after this episode?

Nandan Nilekani -- Chairman of the Board

No, I think this is really a business question and I will request Salil to answer it, maybe in your fashion. But fundamentally, whatever strategy that is being followed, whether it is large deals, employee takeover, all the strategies followed by management is completely endorsed by the company. It is the official strategy of the company presented to the Board, and the Board fully backs this decision.

Shashi Bhusan -- Axis Capital -- Analyst

Very helpful sir. Thanks a lot.

Operator

Thank you. Ladies and gentlemen. Now, I hand the conference back to Mr. Sandeep Mahindroo for further proceedings. Over to you, sir.

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Thanks Nandan for providing your comments on this aspect. Thanks everybody. We now move to the second part of this call which is on the recently concluded quarter and the commentary on business. I'd request Salil to give his opening remarks, subsequent to which Pravin and Nilanjan will talk, before we open up for Q&A.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you, Nandan. Thank you, Sandip. Good morning and good evening to everyone on the call. This is Salil. Before I share with you the updates on a strong quarterly results, I'd like to share a few remarks. I would like to thank the Board and Nandan for the trust in the way we are driving the business and for the conclusion of the investigation, which shows no financial impropriety or misconduct.

I would like to thank all the employees of Infosys and our leadership team, who've been steadfast in their support of me and the work I am been doing here. I would like to thank my family and friends for their guidance in the last few months. They have been a pillar of strength for me. Going forward, my objective remains to continue working with commitment and integrity and with inclusiveness. I look forward to working with our clients in helping them transform their business, for the new digital future and in that process, build new Infosys for the next decade.

With that, let me share our results update. I have a few comments to make there. As I said earlier, a very strong and successful quarter. We delivered another quarter of all around performance in Q3. Revenue growth was strong in Q3, digital revenue share crossed 40%. Operating margins expanded for the second consecutive quarter. Cash conversion was very strong, deal signing was healthy and attrition reduced during the quarter. We grew 9.5% year-on-year in Q3 in constant currency terms. Growth in the first nine months of this financial year is comfortably in double digits at 11.1% over the same period for the prior year.

In Q3, both the US and Europe geography saw double digit growth, and most of our business segments witnessed another quarter of double digit growth in constant currency terms. Our digital revenue grew at 40% [Indecipherable] in constant currency terms. Digital revenues crossed $5 billion [Phonetic] annual run rate and was $1.32 billion in Q3, constituting 40.6% of overall revenues.

As we shared with you at the recent analyst meeting, our digital investments across the five pillars is deepening our engagement with clients, reflecting in strong growth in this area. We had a healthy quarter of large deal signing in Q3 at $1.8 billion, a 36% increase in large deal TCV in first nine months of this year, over the same period in the prior year, is a reflection of our client centricity and the benefits of various investments we've made over the past few years. It is also visible in the growth in client metrics, especially with the $100 million client count increasing by five to 28, and $200 million client count doubling in the last one year.

Operating margin in Q3 extended to 21.9% compared to 21.7% last quarter. Nilanjan will elaborate on the margin puts and takes and cash generation during his remarks. I am pleased with another quarter of reduction in attrition, which declined to 17.6%, that's a gain of almost 2 percentage points compared to Q2. Within this, voluntary attrition is lowest at 15.6%.

Our digital capability along with a large deal engine continues to be the growth driver for us. Let me share with you a few examples; a leading European telecommunications provider selected us as their preferred IT partner, to deliver several digital and data initiatives for the next five years. We've been selected by the Australian Federal Government Services Australia, to digitally transform the entitlement calculation engine for the nation's welfare. This program will replace a significant portion of a 30-year-old platform, modernizing the way Services Australia calculates the entitlements of Australians, using government support.

A European chemical company has retained our services to digitally transform 19 of their datacenters spread across six countries. We have a large scale transformation to modernize existing technology investments and make them digital for the future, by increasingly becoming a priority for our clients, and we are deeply invested in serving their expanding needs.

Driven by double digit growth in the first nine months, we are updating our financial year '20 revenue guidance. Our revenue growth guidance moves from 9% to 10%; to 10% 10.5% on a constant currency basis. We are retaining operating margin guidance at 21% to 23% for the financial year 2020.

With that let me hand it over to Pravin.

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

Thank you, Salil. Hello everyone, wish you all a very happy New Year. Our growth momentum continues, despite the seasonal weakness with year-on-year growth of 9.5% and sequential growth of 1% in constant currency terms. Four of our major business segments saw double-digit year on year growth in constant currency. Both North America and Europe also grew double-digit year-on-year in constant currency.

Utilization excluding trainees declined during the quarter by 50 bps to 84.4%, reflecting seasonal weakness. On-site effort mix reduced to 27.7%, a further decline of 50 bps compared to last quarter. Our ecosystem attrition continued to show results. On a stand-alone basis attrition reduced down by another 1.8% sequentially to 17.6%. Volunteer attrition was even lower at 15.6%. Our enhanced focus on increasing employee engagement, performance in [Indecipherable] driven value proposition and improving diversity will continue. Client metrics continued to be strong. We added 82 new clients during the quarter. Number of $100 million clients increased to 28.

We won 14 large deals with the combined TCV of $1.8 billion. Out of this share of net new deals was 32%. Seven deals were in financial services. Two deals each in communication and manufacturing vertical, and one deal each in retail, energy utilities, resources and services and other segment. Region wise, eight were from Americas, five were from Europe, and one from rest of the world. Cumulative large deals in nine months stand at $7.4 billion, which is 56% higher than nine months of the last fiscal.

Moving to the business segments; while the headwinds persist in financial services, we have seen sequential growth in North America, aided by stable customer spend and new deal wins. We saw a significant impact of [Indecipherable] in Europe and rest of the world region. The commercial and corporate bank, consumer, cost and payments, wealth management and custody, mortgage portfolios of our business are seeing good traction across geographies. We expect pressure to continue in the near-term, driven by market volatility and pressure in spending in running the business segment.

Retail segment performance remained muted with continued cautious stance of clients. There is acceleration in spending toward digital, IT simplification and modernization, which are priority for clients. We are proactively investing in creating assets to help our clients maximize value to price from their digital investments.

Manufacturing performed strong with continued momentum from existing clients. However, weakening economic outlook can be the effects of trade wars have led to increasing scrutiny on spending plans. Infrastructure cloud services are seeing traction and in application related services, focus is on mobility and data analytics. Our deal pipeline is strong with good share of large deals and new account openings across geographies.

Strength in communications segment continued due to past large deal wins. Plan for prioritizing funding in the customer reach out and transformation initiatives through digital channels, self services, omnichannel AI and chatbots. We are also seeing increase in spending around cyber security and network virtualization. Momentum in energy, utilities resources and services vertically softened slightly due to seasonal weakness, and some client-specific issues. We continue to win deals in this segment and have a robust order pipeline. Automation RPA operational insights and technology led innovation are becoming mainstream in resources and utilities. Service reliability, cyber security, compliance and safety are attracting higher spends in this space.

Our digital portfolio is growing bigger and stronger. Digital revenues grew by over 40% year-on-year in constant currency in quarter three and now constitute more than 40% of our overall revenues. We see increasing demand toward data and analytics, cloud, SaaS user experience, security and IoT. We have inaugurated a new digital innovation center in Dusseldorf, Germany to focus on next generation business reach, such as SAP, e-commerce, as well as cloud-based services, IoT, 5G, AI and machine learning. In the last quarter, Infosys was ranked as leader in eight ratings, in the areas of IoT and engineering services, modernization, Microsoft Dynamics, Servicenow and blockchain services.

With that I will hand over to Nilanjan.

Nilanjan Roy -- Chief Financial Officer

Thanks Pravin. Good evening everyone and welcome to our quarter three FY '20 earnings call. Let me start by wishing everyone a very happy New Year.

Our revenues in quarter three was $3.24 billion, which is a constant currency growth of 9.5% year-on-year. The year-to-date constant currency growth is 11.1% compared to the same period last year. Similar to prior quarters, growth was broad-based with US, Europe and many business segments growing double digits year-on-year. Our revenues from digital crossed 40% during the quarter.

Operating margin in Q3 was 21.9% compared to 21.7% last quarter, an improvement of 20 basis point. During the quarter, the rupee depreciated against the dollar by 1%, but was offset by reduced contribution from revenue hedges, leading to a net 10 basis point benefit in operating margins due to currency.

Cost optimization measures, including improvement in on-site mix and operating leverage helped margins by 50 basis points. This was offset by a drop in utilization, some of it seasonal and which impacted margin by 40 basis points, leading to a 20 bps increase in operating margins over quarter two. We will continue to focus on improving operational parameters, like rationalizing pyramid both onshore and offshore improving on-site, offshore mix, lean and automation, and other cost optimization measures.

DSO increased by seven days; although unbilled revenue is also on the other hand, reduced by four days. Cumulative cash flows till December was $1.55 billion, which is a growth of 7.4% over the same period last year, aided by a tax refund of $221 million. Cash and cash equivalents at the end of the quarter was $3.42 billion. Yield on investments, was 7.77%, 20 basis points lower than Q2, reflecting declining interest rate environment in India.

We paid out $577 million interim dividend during the quarter, including DDT. Return on equity has increased to 25.9% in Q3 '20, an increase of 270 basis points year-on-year. This is due to a completion of share buybacks and increased dividend payout for our shareholders. Driven by our performance in the first nine months of the year, we have increased our revenue guidance with 10% to 10.5% in constant currency terms. Operating margin for nine months ended December at 21.4% strongly within the guidance range of 21% to 23.% and hence we are retaining our operating margin band for FY '20 at 21% to 23%.

With that we open up the call for questions.

Operator

Thank you very much sir. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Abhinav Ganeshan from SBI Pension Fund. Please go ahead.

Abhinav Ganeshan -- SBI Pension Fund -- Analyst

Congratulations on a great set of numbers and also for giving the clarity on the whistleblower front. Just my only question was, what is the outlook on the BFS space and the retail space?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

This is Pravin here. We have -- [Indecipherable] the third quarter in BFI is -- on a sequential basis it was flat and on a year-on-year basis, we grew this to 6%. We have seen more than anticipated further impact in Europe and rest of the world. However we have -- on the positive side, we have seen some growth in North America -- banking in North America. That's been a mixed bag. We expect some degree of softness to continue in the coming quarters. But we have a very strong franchise. We have a very diversified portfolio across geographies and segments in this space. And also in the last few quarters, a big percentage of large deal wins have come from this space. So we are very confident that as and when spend -- when we start seeing the spend uptake, we will be able to capture it.

Similarly on CRL space, this quarter of course, few quarters, we saw growth coming back. We had a 1% constant currency sequential growth. Though on a year-on-year basis, it was about 2% to 3%. We expect hopefully -- this will start -- I mean this increase -- increasing growth will sustain over the quarter. But having said that, this space normally is very volatile and very susceptible to changes in consumer sentiments and so on. And we continue to see a record number of store closings and so on. So we expect some degree of volatility to continue in this space. But hopefully we are -- we have come off a series of weak quarters and hopefully the positive quarter we had this quarter, will continue in the next few quarters.

Abhinav Ganeshan -- SBI Pension Fund -- Analyst

Okay, thank you. That was helpful That's all from my side. Thanks.

Operator

Thank you. The next question is from the line of the Diviya Nagarajan from UBS. Please go ahead.

Diviya Nagarajan -- UBS -- Analyst

Thanks for taking my question. On the contract flows. I think if you look at the nine month trends that we've seen in net new deals, I think last quarter we did see a low of around 10% of net new deals. This quarter its about 30%, versus when, much higher new deals in the last year. That when combined with some of the softness that you've just alluded to in some of your key sectors, I'm trying to understand what will then keep revenue our run rates where it is right now? What is needed to kind of keep this momentum up, as the next few quarters come in?

Salil Parekh -- Chief Executive Officer and Managing Director

Hi Diviya, this is Salil. I think the way we are looking at it, and the way we are thinking about our business in terms of what are the drivers for our growth as we shared at the Analyst Day, and throughout the past year or so, the main focus has been large deals and digital expansion. To continue that momentum, we need to have that working through the next few quarters and obviously into the future. Our pipeline today is quite strong, so we have a good sense of where that's coming from, and there remains significant connect and trust from our clients, and we are engaging with them on several of the new programs, and that's where we think we have to grow more and more. But obviously, the way to drive that, our focus is to really close on the financial year in March, and then start to think about the next fiscal year and what that's going to look like, given the overall environment and some of the comments that Pravin made about Banking -- Financial Services and retail.

Diviya Nagarajan -- UBS -- Analyst

Fair enough. Congratulations to you and Nilanjan and the rest of the management team for a positive closure on the investigations and I'll come back for follow-up questions if there is time. Have a great year.

Operator

Thank you. The next question is from the line of Bryan Bergin from Cowen. Please go ahead.

Bryan Bergin -- Cowen & Company -- Analyst

Hi, thanks again. I wanted to ask on the core, can you comment on the acceleration in the decline in that quarter to negative 5%. Just what are the key drivers there?

Nilanjan Roy -- Chief Financial Officer

So as you saw in the note, the core business had a negative growth for this -- in this quarter year-on-year. And we have had in the past few quarters, more in the range of zero, zero plus type of growth. [Indecipherable] rose low single digits. What we are seeing -- what that's demonstrating to us is, the client buying is more and more in the digital area. Our business in the cost services is extremely strong and competitive, and we believe that even here, we have situation where we are ahead of where some of our peers are. But the spending with clients is not focused on digital, and with our reorientation investments and really market connects in digital with our partners and with our clients, we start to see some benefits where the digital is growing and therefore helping the overall company.

Bryan Bergin -- Cowen & Company -- Analyst

Okay, thank you. That was helpful. And then on margin, as far as the outlook goes and as it relates to your initial three year investment and turnaround plan, would you say first that that has progressed to your plan? I am not asking for formal guidance beyond fiscal '20, but how should investors think about the margin drivers going forward from here?

Nilanjan Roy -- Chief Financial Officer

So like I just mentioned earlier in the press call. So this industry, forever, will face two cost headwinds. One is the cost pricing pressure, and second is the wage inflation. Usually the wage inflation, especially in India, will get offset hopefully by currency in the long term, with the real differential, which basically means, how do we make up the balance margins, which is the cost optimization.

We laid out a very aggressive cost optimization plan we discussed in detail in the Analyst Call. Couple of things which are quite routine for this industry, we all know about the pyramidization. We talked about the on-site-offshore mix. But few things we are driving we think quite uniquely. One is the setting up of the innovation hubs in the US. I think that's quite unique for us in that space, because that allows us to build a full stack permit in the US, unlike a very top-heavy pyramid, which is there for most players in this segment.

Another thing which we are doing very aggressively and you will see our numbers on subcon costs which are well below our peer set. Subcons are quite necessary in this industry to make sure that there is -- short-term demand has been met or their special skills. But what we've been doing now is at the tail-end of the subcons, we are trying to replace them either through our own employees. So the hiring lead times, which is usually shorter for these, we will meet up with our own employees or replacing these or converting some of these subcons to our own employees. So you see our subcon costs have been quite moderated on the last few quarters.

So we have a host of activities on cost optimization across -- we have got 21 tracks [Phonetic] running simultaneously. And this is a treadmill we will have to be on this year-in, year-out. We talked about digital pricing, that's something we are looking at and not that we think, will command dramatic premiums. But know that we shouldn't be leaving any loose change on the table, when we -- looking at our pricing of digital talent with slight care.

So like I said, this year we are at 21.4%. For the nine months, we are sticking to 21% to 23%, and we will come back to you next year, as we look at and we set up new [Indecipherable].

Bryan Bergin -- Cowen & Company -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan -- Investec -- Analyst

Yeah, hi. Thanks for taking my question. Couple of questions actually. One is, how much did the acquisition of Eishtec contribute for this quarter?

Nilanjan Roy -- Chief Financial Officer

That was, I think $3 million.

Nitin Padmanabhan -- Investec -- Analyst

$3 million. Sure. Thanks. The second is, in terms of the cost savings that you alluded to Nilanjan, you had mentioned $150 million of cost saving target for the year; how much of that have we sort of achieved in the first nine months?

Nilanjan Roy -- Chief Financial Officer

So, I think we are well on our way to reach the annual target. So maybe hopefully we can be slightly above that, but we will reach quite comfortably to the $150 million number.

Nitin Padmanabhan -- Investec -- Analyst

Sure. And the other thing was on the DSO, it has been sort of trending up over the past many quarters. Anything -- is that a reflection of the large deals or how should one think about it? Should we assume elevated levels of DSOs going forward?

Nilanjan Roy -- Chief Financial Officer

No. So, I think last quarter, we were -- capex increased in unbilled. So as you see, in conjunction with unbilled and unearned, actually the overall DSO, unbilled-unearned and AR is actually only up one day. So a lot of this is, as we build the client, it will get collected in the future. So we've had about I think $100 million reduction in unbilled as well. So it has to be in conjunction with that.

Nitin Padmanabhan -- Investec -- Analyst

Yes, I'm looking at that, but over a longer period. So if I take a four quarter rolling period, it seems that it's sort of improving -- sort of increasing every quarter.

Nilanjan Roy -- Chief Financial Officer

Yes, there has been some increase and I think if you see in the industry as well, there has been a little bit of increases. We have seen clients asking for little bit more headroom, but I think there's nothing unduly concerning about it.

Nitin Padmanabhan -- Investec -- Analyst

Sure. Fair enough. And thank you so much. I think I'll come in for a follow-up.

Operator

Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman -- BMO Capital Markets -- Analyst

Yes. Thank you. I wanted to ask two questions, if I could. I wanted to go back to margins for a second. You've had -- this is your second straight quarter of sequential margin increase, it's still down year-over-year, and should we therefore assume that as we look forward the margins, if you continue to have flat to up sequential margins, that you can hold these levels, as we look into the next fiscal year and any specific colors you want to offer on March quarter, on how we should be thinking about the puts and takes associated with the operating margins? And then I have a follow-up, please?

Nilanjan Roy -- Chief Financial Officer

As we said earlier, we are still holding on through 21% to 23%, and we had 21.4% and that's the way we look at the overall margins for the year. So I don't think at this stage, we will be able to give an outlook on where we're going to end up this year in the quarter four or next year -- by next quarter we will give you an outlook into '21 -- FY '21, but that's premature now.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay. Any puts and takes you want to call out for the March quarter, in particular on operating margins?

Nilanjan Roy -- Chief Financial Officer

No, nothing really.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay. Okay. Then as I think about the revenue guidance that you've provided; you have raised it for this quarter. But I still look at what's implied for the March quarter. It still suggests sub-seasonal growth relative to the last two fiscal years for the March quarter on a sequential basis. Is there anything you want to call out on why you've talked about the pipeline being pretty rich. But any reason why it would be sub-seasonal growth March quarter?

Salil Parekh -- Chief Executive Officer and Managing Director

This is Salil. The way we look at the guidance is, given the strength we've had in the first three quarters of the year, the current pipeline, lead conversions and the revenue outlook we see internally for this coming quarter Q4. We feel comfortable to raise our guidance for the full year, and of course also narrow the band. The specific commentary on the segments is more -- I will say, refer back to what Pravin said, the comments on financial services and retail, which I gave you some more color on, and then the real strength we have in several other of our segments, which are all growing double-digit or more, and the color that we shared on those as well.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay, all right. That's it for me. Thank you.

Operator

Thank you. The next question is from the line of Pankaj Kapoor from JM Financial. Please go ahead.

Pankaj Kapoor -- JM Financial -- Analyst

Yeah hi. Thanks for the opportunity. Nilanjan, Salil had mentioned in the press meet that there are plans to replicate the on-site pyramid that we have developed in the US, now also to Europe and Australia in the coming year. So I was just wondering if you can elaborate on this, in terms of what kind of a scale we are looking at and what kind of a investment this will require? And what's the plan of funding this investment? Will it be through the normal period, or will there be any incremental investment that will be going into this?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

This is Pravin here. Similar to what we did in US, we will -- we have started the journey in the rest of the world, as well as in Europe. In Europe in April, we started a hub in Romania, and in October, we opened in Dusseldorf, Germany. Similarly in Australia, we will start with Melbourne and Sydney, where we already have a presence. We are not looking at any significant incremental investments. We will probably do it at a much slower pace than what we did in US. US we had a context here -- more and more we will do in the context of the client, where will we have a client concentration and client requirements and that's where we will do it. So, this will probably take slightly longer than what we did in US with very minimal investment.

Pankaj Kapoor -- JM Financial -- Analyst

Got it. And second, just on a structural basis as we get into 2020, your attrition rate are of course coming down, and looks like there have been some work on the pyramid as well. The subcontractor costs appear to be also stabilizing. So is it fair to assume that the supply side pressure this year are far lower compared to what we had last year?

Salil Parekh -- Chief Executive Officer and Managing Director

This is Salil. On the supply side, there is definitely a significant demand for people. I think the attrition improvement is frankly a function of the programs that we launched and we shared some details in the earlier session, but we also shared that at our Analyst Day, which clearly comprehensively looks at how we engage with our employees in this new era, where the value proposition in that [Indecipherable] is very different. So that's really what's driving it.

I think our approach to subcontractors is much more tailored to make sure that -- as Nilanjan said, we are replacing subcontractors with recruits as we see more demand stability. So we see supply pressure fairly strong, ideally [Indecipherable] at this stage. But we'll see how the next year or two will look in terms of demand, mainly from clients and that will also give a benchmark for the supply side.

Pankaj Kapoor -- JM Financial -- Analyst

Okay. So just to -- basically clarify, my question was more in terms of the kind of outlook on the wage hike, do you expect this year -- you think it will be relatively lower compared to what we had last year? And any kind of intervention that we had to do last year, in terms of the specific skill sets. Those kind of interventions may not be required?

Salil Parekh -- Chief Executive Officer and Managing Director

Okay. I follow what you ask, in terms of the salary increase, the decision will be made a bit later. We are not in a position to comment on the next next fiscal year salary increase yet.

Pankaj Kapoor -- JM Financial -- Analyst

Okay, thank you and all the best.

Operator

Thank you. The next question is from the line of Joseph Foresi from Cantor. Please go ahead.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi, two questions for you. One on demand, any thoughts on the sustainability of the growth rate within digital? And do you feel like the business has reset at this high single-digit annual growth rate?

Salil Parekh -- Chief Executive Officer and Managing Director

So again here -- this is Salil, the thinking we have is more focused on how we are working with our clients and fulfilling the digital needs. We understand that the digital market as a collective, is growing in the range of 15% or so. So our target would be to gain market share, based on the last few quarters. Clearly we are in this quarter -- we are at 40%. I don't have a sense really -- for example in financial year '20, what growth approach is going to be, and certainly we do not outline externally, what our three year growth outlook could be.

What is clear though is, we seem to be winning market share in digital, and now that's getting demonstrated over the past, at least six to seven quarters. So my sense is, if we can continue that, we will have the benefit of gaining market share overall, and then all of the other factors for example, what Pravin shared on financial services and retail, global macro and so on will come into play and that will guide how the overall growth pace will look.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Okay. And then my second question, is just to again to go back to margins, any reason to think that margins would not decline overall longer period of time? I mean you cited the pricing pressure and probably most of your business, wage inflation and then clearly you've got the need to invest to handle the digital movement. So from these levels, even though you're not giving any color or guidance on it, any reason to think that margins would improve or stabilize here? Thanks.

Salil Parekh -- Chief Executive Officer and Managing Director

So like I said, our first task of this year, as we enter FY '20 was basically stabilization of margins. You saw, we came off at the end of quarter four, and that was on the back of our investments we have made, both on the sales side. We have seen the dividends of that paying out. The impact of that is on large deals, on new account, how we split our hunting and farming teams. So we've really seen those investments paying out. We've talked about the innovation hubs and setting that up and how we are leading to an improved cost structure for us, as well as being a magnet for attracting client business.

So I think this year's target was basically coming to a stabilization mode, and I think that's where we are looking ahead. It is how we make sure we're consistently delivering. Like I said, this is a treadmill. We need to reensure that the cost optimization stacks quickly to deliver in year-in and year-out. So there's no reason, why we think that strategically or in the long-term, this business should have lower margins. We've seen -- we talked earlier of pricing, we always talked about digital talent. So we should be able to attract this new talent appropriately, to get appropriate premiums related to the costs. So these are some of the things we are looking at, and like we said, we will come back [Indecipherable].

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thank you.

Operator

Thank you. The next question is from the line of Moshe Katri from Wedbush Securities. Please go ahead.

Moshe Katri -- Wedbush Securities -- Analyst

Okay, thanks. A couple of questions here. Given the fact that you're the first company in the space to kind of report this quarter. Maybe you can share with us some color that you're getting from clients about spending intentions for calendar year 2020? Maybe some rough numbers in terms of what you expect spending to look like year-over-year? And then also maybe some color on the budget cycle for 2020 as well? Thanks.

Salil Parekh -- Chief Executive Officer and Managing Director

Hi Moshe, this is Salil. We've started to get a sense with our discussions with clients, but it is relatively early in the calendar year '20. And our own cycle, we are now starting to build our own financial model for our next fiscal year, starting in April. So we don't have a sense today that is robust, that I can share with you what their external view is. We should have a better sense when we come back to you in the April cycle.

Moshe Katri -- Wedbush Securities -- Analyst

All right, that's fair. And then second question is, I think the biggest highlight for the quarter was the growth in digital that you had, some pretty big and impressive numbers. Is there anything to call out here in terms of what's driving that? I mean things -- there seems to be -- I mean this seems to outperform some of the other peers in terms of growth in digital. Are you doing things differently, are you getting better traction, run rates etc., maybe that -- maybe you can comment on that? Thanks a lot.

Salil Parekh -- Chief Executive Officer and Managing Director

Sure. The thinking for us in digital, as you may know, there are five areas of digital we are focused on. Three of them we see incredible traction today, the three being, what we call experiencing really how client and end-users connect with the technology and we've won, I think beyond sort of more run of the mill experience a really intuitive human experience, thinking with digital studios all across the US and Europe and Australia.

The second is the area of data, which is from a insights capability on the -- digital. Once again, we see extremely good traction on the data side. We see clients really responding well to our capabilities there and we also see an extremely high margin business with good growth.

And the third is cloud where we built I think very strong partnerships, with the three big cloud players globally. We've also built very strong partnerships with the SaaS players, and those -- their own growth is in some ways, reflecting on us, and giving us tremendous traction. So those are the three big areas for us today, that are getting the most impact, in terms of growth.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Thanks for the color.

Salil Parekh -- Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sandeep Shah from CGS-CIMB. Please go ahead.

Sandeep Shah -- CGS-CIMB -- Analyst

Yes, thanks for the opportunity. Just wanted to understand, if you look at the new business wins of Q2 and Q3, looks lower versus what it used to be in the earlier quarters. So is it a early indication that entering CY 2020, clients are more cautious in terms of IT spend, especially on the new initiatives?

Nilanjan Roy -- Chief Financial Officer

I'm not sure where you are drawing this conclusion, because net new, if you look at large deals we win, the net new was 32%, was much higher than what it was the previous quarter. So and obviously, I mean if you look at the last few quarters, there are some quarters where we've had higher net new and some quarters where renewals have been higher. As Salil mentioned earlier, there are primarily two drivers for our growth, one is large deals, and we not only have to win our fair share and defend -- win large part of the renewals, but also, net new. And we also have to capture as much of share on the digital side. And as long as we are able to do that, we feel that the momentum will continue.

Sandeep Shah -- CGS-CIMB -- Analyst

Okay. And just a follow-up, is it any change in trend of deal closure, where decision-making cycle has been getting elongated; because, even the election year coming in the US as a whole. So any impact in terms of the decision making of a client?

Nilanjan Roy -- Chief Financial Officer

Not at this stage. Decision cycles have remained the same in the last few quarters. We have not seen any changes.

Sandeep Shah -- CGS-CIMB -- Analyst

Okay. Okay. And just the last bookkeeping question, the tax rate has gone down. So I do agree there is a different angle as a whole. But is there any -- apart from that, benefit coming out of the new tax regime in India and what could be the normalized tax rate going forward?

Nilanjan Roy -- Chief Financial Officer

As we said in the beginning of the year, our overall guidance on NPR was between 27% to 28%. We got two -- one benefits here -- this year. One is that, in the last quarter, there was a clarification on the US BEAT tax. So we've got a one-off benefit there; plus in India, in one of our subsidiaries, and we have decided to go for the new tax regime, which is the 25% lower tax rate. So we got a benefit of, I think, approximately about $24 million between these two during the quarter. So our normalized would be about 27%. But these are two one-offs we've got in this quarter.

Sandeep Shah -- CGS-CIMB -- Analyst

Thank you, and all the best.

Nilanjan Roy -- Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Arvind Ramnani from KBCM. Please go ahead.

Arvind Ramnani -- KBCM -- Analyst

Hi, thanks for taking my question. So I have a couple of quick questions over here, when you look at your client conversations this year versus last year, there has certainly been a lot more changes. Your mix toward digital has changed quite a bit. How are you feeling -- I'm not looking for necessary guidance for next year, but how are you feeling about the demand environment this year, relative to last year?

Salil Parekh -- Chief Executive Officer and Managing Director

Again, as we shared earlier -- this is Salil, the real work on that is set to happen in this next few weeks for us. We will start to put together a little bit more systematic view from all of our segments and our service lines. We understand what that looks like for the full year. It's a little bit early in our cycle for me to comment on that.

Arvind Ramnani -- KBCM -- Analyst

Okay, great. And then I know this was already asked, the previous question -- the previous person already asked about this, impact on elections and any color you can provide? I mean has this come up at all in client conversations or about sort of planning? Do you expect any, you know, near-term delays?

Salil Parekh -- Chief Executive Officer and Managing Director

I think you're referring US elections, right?

Arvind Ramnani -- KBCM -- Analyst

Yes, yes.

Salil Parekh -- Chief Executive Officer and Managing Director

No. For us, nothing has come into the sort of client discussion mix, to suggest a change in direction, as a result of that at this stage. So we don't have any specific client shift that we can tell. Maybe as the year progresses, we'll see something.

Arvind Ramnani -- KBCM -- Analyst

Great. Thank you, and good luck for 2020.

Operator

Thank you. The next question is from the line of the Vibhor Singhal from Phillip Capital. Please go ahead.

Vibhor Singhal -- Phillip Capital -- Analyst

Yes. Good evening, sir. Thanks for taking my question. Salil, I just had one question on the manufacturing division. So our manufacturing division has reported quite strong growth in the last six quarters on a Y-on-Y basis. So just wanted to check any headwinds or early signs of any weakness that you might see because of a slowdown in the auto segment that we have seen, especially in the European markets? Or is it like -- we're not seeing anything of that sort, as of now in our client base?

Nilanjan Roy -- Chief Financial Officer

Overall, we've had a good run in manufacturing this quarter. It was one of the segments where we saw much higher sequential quarter-on-quarter growth, and for the year as well, a double-digit growth. So we have seen very good traction. Having said that, we do see some softness, particularly in the auto sector, given trade wars. Even though there has been some slowdown on the trade war side, some resolution, but still there is some uncertainty. And this is also impacting the industrial segment, where there is dependency.

On the other hand, when you look at aerospace, there is a huge order backlog and there, the pipeline is strong. But despite the softness, the softness has existed one or two quarters that we have done well in this segment, on the back of wins that we had in the recent past. So while there is softness, we feel comfortable -- at least we feel that we are in a good space in this segment, and we expect that trend to continue.

Vibhor Singhal -- Phillip Capital -- Analyst

Sure. That's really helpful. Thanks for my questions. That was all from my side. Wish you all the best.

Operator

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Apurva Prasad -- HDFC Securities -- Analyst

Thanks for taking my question. I had a question on the core services and products piece. That seems to be declining at a faster pace. So I mean, can you attribute anything to that? Is there probably increased competitive intensity in renewals?

Salil Parekh -- Chief Executive Officer and Managing Director

I didn't follow the question. you said it's about the core services or the decline in the core services?

Apurva Prasad -- HDFC Securities -- Analyst

Yes, yes. The decline in the core services, that seems to be increasing, which was flattish about a couple of quarters back, that's gone to almost 6%?

Nilanjan Roy -- Chief Financial Officer

Yes, so we did talked a little bit earlier about the core services outlook. What we are seeing today, is really, a reflection of where we see a client spend. A client spend more and more on the digital portfolio, and there -- with that spend, is less on the core services. Our sense is that, what we see here is still a much more robust, in terms of a differentiation in core services, [Indecipherable] some of our peers. Having said that, [Indecipherable] functions of what we see in the market in terms of the increasing shift to digital, which seems to be the secular trend, and that will guide the core services.

As you rightly said, the last few quarters, we've seen something in the zero, zero plus range or maybe a year ago, low single digits. So we do need to watch it carefully and see where it goes. But we also want to reposition our portfolio, toward more of our digital business, which today as we've shared in earlier calls has a higher margin profile. So net-net, we think this helps us reposition our company, and also the [Indecipherable] repositioned.

Apurva Prasad -- HDFC Securities -- Analyst

Right, that's helpful. Thank you.

Operator

Thank you. The next question is from the line of Sudheer Guntupalli from Motilal Oswal. Please go ahead.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Yes, sir. Thanks for giving me the opportunity again. If you look at the sequential growth in the top client and top 10 clients and even top 25 clients, growth looks pretty muted, especially in the top client. So growth in this quarter seems to be largely driven by clients below top 25. So any color on this will be helpful?

Nilanjan Roy -- Chief Financial Officer

So, I think in this quarter, given the furlough impact, I don't think it's right to draw any inference. But we are not really concerned about this, because the furlough impact varies from sector to sector and client to client.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Sure sir. And second question is, we have ramped up our US on-site headcount over FY '19 and we have been talking about the potential back ended productivity improvement among these employees, which can drive up margins. Any qualitative insights into this, will be helpful?

Nilanjan Roy -- Chief Financial Officer

I think that attempt is -- I mean there are two things, right; one is, we are trying to derisk our business by doing more local hiring, having a much larger local presence. And secondly from cost perspective, that making sure that while we ramp up on the local side, we build a pyramid. So we have done reasonably well, as we have mentioned in the past, we have recruited more than 10,000 people and a good percentage of them are associates from campuses. And so far, the utilization of this people in projects have been decent, and it's probably much better than what we had anticipated earlier.

So we feel confident and with our unique model of having hubs, where we're able to locate these associates and deliver projects quickly, and we feel that reasonably confident that this model is working, so not only are we able to derisk the risk that we have, but we are also able to contain the cost structure by building a pyramid. And I think that effort will continue. But difficult to quantify at this stage because, it is early in the journey, we are just about 12, 18 months in the journey, it will take some time for this to stabilize.

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Sure sir. Thanks, and all the best for the rest of the year.

Operator

Thank you. The next question is from the line of Dipesh Mehta from SBICAP Securities. Please go ahead.

Dipesh Mehta -- SBICAP Securities -- Analyst

Yeah. Thanks for the opportunity. Sir, if we look at the growth number from Q1 to implied Q4 kind of thing, we are seeing, almost 4% deceleration from YoY perspective in constant currency. Despite very healthy strong deal win during this period, so if you can help us understand, how one should look to the momentum deceleration entering into next year? That is question one. Second question is about in energy and utility, in earlier your prepared remarks, you indicated about some client-specific issues, so if you can provide some more color around it, whether it is likely to sustain or it is temporary, whatever color if you can provide something? Thank you.

Salil Parekh -- Chief Executive Officer and Managing Director

On the first part -- this is Salil, as you might, in some of our earlier calls, we shared that the first half of the year, growth was higher year-on-year than the second half of the year, and that's really the -- where this is progressing. You don't see any change in the traction with clients. There is some base effect that starts to [Indecipherable] into Q3 and then in the ongoing quarters. But we don't see any change in the locate and connect [Phonetic] with our clients at this stage.

For the following year, we'll be in a better position to comment at the end of this quarter, when we come back later. On the second part, Pravin will just give an update.

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

Yeah on the shore [Phonetic] segment we've had a successful -- several quarters of successful double-digit growth. This is the first quarter where we have seen negative growth on a quarter-on-quarter basis, and less than double-digit growth. And partly because of, as we said earlier, it's partly because of the seasonal weakness, the the furlough impact. And then couple of plans, one is we are descoping in a particular large program, and in other account, we have seen some level of in-sourcing. But having said that, given the traction that we have seen in the past, this is not a secular trend, and we expect the growth to come back a bit, in the coming quarters.

Dipesh Mehta -- SBICAP Securities -- Analyst

Thank you. Thank you.

Operator

Thank you. The next question is from the line of James Friedman from Susquehanna. Please go ahead.

James Friedman -- Susquehanna Financial group -- Analyst

Hi. Pravin. I just want to make sure I understand your message, your observation with regard to North American BFS. You were going kind of quick there. Are you seeing it's getting better -- North -- because you talked about the geographic region of BFS is -- what was your comment again about North America, specifically banks?

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

See, if you look at our performance this quarter, a big impact has been from Europe and rest of the world, partly higher than expected furlough and slowdown, particularly in Europe due to uncertainties around Brexit. On the other hand, if you look at North American banking segment, we have seen growth. So that's what I meant, and in the last couple of quarters, there has been good comeback in North American banking space, and that was the comment I made.

James Friedman -- Susquehanna Financial group -- Analyst

Got it, OK. That's great. And then, with regard to communications, is that 5G or is that -- is it too early to conclude that? I know 5G, according to you, populates a lot of different verticals, but is that related, or is there something else going on? Thank you.

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

I think in communications its -- at least the growth has been largely contributed by some of these large deal wins that we have had in the past, and that's contributing to the growth. We do find lot of investment in 5G, obviously there is tremendous pressure for everyone to invest in 5G. We see opportunities there. But the ticket prices are still small. Most of them are in pilot phases and so on. But growth is coming from traditional businesses, as well as digital transformation opportunities.

But in this segment, if you look at it, on one hand, there is tremendous pressure on them to invest in 5G. At the same time, the revenue per consumer -- the TRP is decreasing, they have to compete with digital natives, and the OTT provider. So there is a significant amount of investment in digital channels and services, AI, chatbots and so on, particularly in customer service space. And that's where the investment is, and today I think the growth is coming through those investments, not necessarily from 5G. While investment is there, but from a [Indecipherable].

James Friedman -- Susquehanna Financial group -- Analyst

Great. Appreciate the color. All the best. Thank you.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I now hand the conference over to Mr. Sandeep Mahindroo for his closing comments. Over to you, sir.

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Thanks everyone for joining us on this call. We really liked your question and answers, spending the time with us. Look forward to talking with you again. Have a good day.

Operator

[Operator Closing Remarks].

Duration: 87 minutes

Call participants:

Sandeep Mahindroo -- Financial Controller and Head, Investor Relations

Nandan Nilekani -- Chairman of the Board

Salil Parekh -- Chief Executive Officer and Managing Director

U.B. Pravin Rao -- Chief Operating Officer and Whole-time Director

Nilanjan Roy -- Chief Financial Officer

Moshe Katri -- Wedbush Securities -- Analyst

Rod Bourgeois -- DeepDive Equity Research -- Analyst

Bryan Bergin -- Cowen & Company -- Analyst

Sudheer Guntupalli -- Motilal Oswal -- Analyst

Sandip Agarwal -- Edelweiss Capital -- Analyst

James Friedman -- Susquehanna Financial group -- Analyst

Sandeep Shah -- CGS-CIMB -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Shashi Bhusan -- Axis Capital -- Analyst

Abhinav Ganeshan -- SBI Pension Fund -- Analyst

Diviya Nagarajan -- UBS -- Analyst

Nitin Padmanabhan -- Investec -- Analyst

Pankaj Kapoor -- JM Financial -- Analyst

Arvind Ramnani -- KBCM -- Analyst

Vibhor Singhal -- Phillip Capital -- Analyst

Apurva Prasad -- HDFC Securities -- Analyst

Dipesh Mehta -- SBICAP Securities -- Analyst

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